LAUNCESTON, Australia, Jan 14 (Reuters) – China’s record imports of iron ore in December capped a year of strong growth, while also proving that the strategy of the big miners is at least partially working.
China brought in 86.85 million tonnes of the steel-making ingredient in December, bringing the total for 2014 to 932.5 million tonnes, a gain of 13.8 percent over the previous year.
The jump in iron ore imports isn’t because China is producing more steel, with output of crude steel rising a mere 1.9 percent in the first 11 months of 2014 over the same period in 2013, according to official figures.
It’s also not because huge stocks of iron ore are being built up in warehouses, with inventories monitored by the Shanghai Futures Exchange SH-TOT-IRONINV dropping to 99.85 million tonnes in the week to Jan. 9, the lowest in 11 months.
The most logical explanation is that the 47-percent decline in the Asian spot iron price in 2014 .IO62-CNI=SI is displacing some high-cost Chinese domestic output.
This has been the strategy of the big three iron ore miners, Brazil’s Vale and the Anglo-Australian pair of Rio Tinto and BHP Billiton.
Rio Tinto and BHP Billiton have repeatedly argued that the ultimate impact of the massive expansions of their Western Australia mines would be to force high-cost producers to leave the market.
This has already been seen in producers outside China, with smaller miners in Australia and elsewhere struggling to compete with the big three.
It now appears to be working in China as well, with even the notoriously unreliable official iron ore output numbers showing production dropped 7.5 percent in November from the year-earlier month.
The issue for the big three miners is whether enough high-cost production is being displaced, and it’s here that the doubts lie.
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